Doing Business in Indonesia

Business and Economic Overview

As real GDP is expected to grow, inflation, which has been relatively unstable over the past ten years, is forecast to remain steady at around 3.5% annually through to 2022. Indonesia also has a relatively diverse domestic and export economy formed of service, industry and agriculture sectors. The country also has a positive trade balance and a strong banking sector, whilst sovereign bonds are rated as ‘investment grade’ by the Big Three rating agencies.

There can be major obstacles to doing business in Indonesia. Indonesia has a Negative Investment List which restricts foreign investment in certain sectors, particularly those concerning energy and natural resources.

Indonesian infrastructure is also inconsistent across the archipelago and has major shortcomings, which leads to high logistical costs. Despite President Widodo’s efforts to reduce corruption, it remains a regular feature of business life and corruption in customs, public service, public procurement and the tax administration act as a major deterrent to business and investment. A lack of government transparency furthers these challenges. As such, Indonesia is ranked 72 of 190 in the World Bank’s Ease of Doing Business Index.

Nevertheless, firms with a long-term strategy can greatly benefit from the Indonesian market. Indonesia provides much opportunity for consumer product companies, as domestic consumption is the backbone of the economy. The Indonesian government also has plans to greatly improve its infrastructure in order to allow the expansion of its energy sector.

Roads, ports, railways and airports are planned to be built across the archipelago whilst there are extensive plans to extend electricity networks telecommunication and internet coverage throughout the country. As such, numerous opportunities exist across these sectors both in specialist services and high-tech products. 

The palm oil sector is also booming, despite a recent EU ban on palm oil as a biofuel, as global output is set to rise by around 10% in 2018, led by Indonesia which produces over half the global supply.  The renewable energy sector is also set to grow exponentially, as the government has targeted to increase renewable energy use by 17% by 2025.

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